Chapter 14 Flashcards
Bond Indenture
Document held by a trustee that describes specific promises made to bondholder
Debenture Bond
Secured only by “full faith” of corporation
Subordinated Debentures
Not entitle to receive any payments until claims of other specified debt issues are satisfied
Mortgage Bonds
Backed by a lien on a specific real estate
Callable Bonds
Allows issuing company to buy back or call bonds before maturity
Sinking Funds
May be required to redeem the bonds on a prespecified year by year basis
Serial Bonds
Retired in installments during all or part of the life of the issue with each bond having its own maturity date
Convertible Bonds
Can be converted into shares of stock
Bond Price
PV of principal + PV of interest payments
Sale of bonds
Legal, accounting fees, registration and underwiting fees, printing costs
Early Extinguishment of Debt
When debt is retired prior to its scheduled maturity date. Represented as a Gain/Loss
What are Convertible bonds used for
Sell bonds at a higher price
Use a medium of exchange in mergers and acquisitions
enable smaller firms to obtain access to the bond market
Induced Conversion
Through the call provision, encouraging voluntary conversion
Detachable Stock Purchase Warrant
Gives option to purchase a stated number of shares of C/S at a specified option price often within a given period
Accrued Interest in Terms of Bonds
All bonds sell at their price plus any interest that has accrued
